Partnership received 120 days to make a late section 754 election

Plain-English summary

A limited liability company taxed as a partnership intended to make a section 754 election but failed to include it with its return. The IRS accepted the company's representations that it acted reasonably and in good faith and that relief would not prejudice the government. It granted 120 days to make the election using the appropriate amended return or administrative adjustment process. The company and affected partners must include all property-basis and outside-basis consequences that would have applied if the election had been timely, even where a limitations period has expired.

Ruling snapshot

• Question: May the partnership make a late section 754 election for the specified tax year?
• Outcome: Approved, subject to filing and basis-adjustment conditions within 120 days
• Key authorities: IRC §§ 734, 743, 754, and 6227(b); Treas. Reg. §§ 1.754-1(b) and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202521012 Third Party Communication: None
Release Date: 5/23/2025 Date of Communication: Not Applicable
Index Number: 9100.15-00, 754.00-00,
754.02-00, 9100.00-00 Person To Contact:
-------------------, ID No. -----------------
------------------ Telephone Number:
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----------------------------------- Refer Reply To:
------------------------------ CC:PT&E:B03
--------------------------------- PLR-116018-24
Date:
February 25, 2025

LEGEND

Company = ------------------
-----------------------

Date = --------------------------

X = ----------------

State = -------------

Dear --------------:

  This letter is in response to a letter dated August 30, 2024, and subsequent

correspondence, submitted on behalf of Company by its authorized representatives,
requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations for Company to file an election under § 754 of the Internal
Revenue Code (Code).

                                              FACTS

     The information submitted states that Company, a State limited liability company

classified as a partnership for federal tax purposes, intended to make a § 754 election
for its taxable year ending Date. However, Company failed to timely file the § 754
election with its return. Company represents that it has acted reasonably and in good
faith, and that granting relief to make a § 754 election will not prejudice the interests of
the Government.

PLR-116018-24 2

                              LAW AND ANALYSIS

    Section 754 provides, in part that is a partnership files an election in accordance

with the regulations prescribed by the Secretary, the basis of partnership property is
adjusted in the case of a distribution of property, in the manner provided in §734, and in
the case of a transfer of a partnership interest, in the manner provided in § 743. Such
an election applies with respect to all distributions of property by the partnership and to
all transfers of interests in the partnership during the taxable year with respect to which
the election was filed and all subsequent taxable years.

   Section 1.754-1(b) of the Income Tax Regulations provides that an election

under §754 to adjust the basis of the partnership property under §§ 734(b) and 743(b),
with respect to a distribution of property to a partner or a transfer of an interest in a
partnership, must be made in a written statement filed with the partnership return for the
taxable year during which the distribution of transfer occurs. For the election to be valid,
the return must be filed no later than prescribed by §1.6031(a)-1(e) (including
extensions) for filing the return for such taxable year.

   Section 301.9100-1(c) provides that the Commissioner may grant a reasonable

extension of time to make a regulatory election, or a statutory election (but no more than
six months except in the case of a taxpayer who is abroad), under all subtitles of the
Code, except subtitles E, G, H, and I. Section 301.9100-1(b) provides that the term
“regulatory election” includes an election whose due date is prescribed by a regulation
published in the Federal Register.

   Section 301.9100-1 through 301.9100-3 provide the standards that the

Commissioner will use to determine whether to grant an extension of time to make an
election. Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides rules for requesting extensions of time for
regulatory elections that do not meet the requirements of § 301.9100-2.

    Under § 301.9100-3, a request for relief will be granted when the taxpayer

provides evidence (including affidavits described in § 301.9100-3(e)) to establish to the
satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good
faith, and (2) the grant of relief will not prejudice the interests of the Government.

                                  CONCLUSION

    Based solely on the facts submitted and the representations made, we conclude

that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. As a
result, Company is granted an extension of time of 120 days from the date of this letter
to make a valid election under §754 for its taxable year ended Date. The election
should be made in a written statement filed with the appropriate service center
accompanying Form 1065-X, Amended Return or Administrative Adjustment Request
(AAR), or Form 8082, Notice of Inconsistent Treatment or AAR, and for any related

PLR-116018-24 3

filings as instructed in Form 1065-X or Form 8082, as appropriate. A copy of this letter
should be attached to the relevant filing.

    This ruling is contingent on Company's relevant filing(s) containing adjustments

to the basis of its properties to reflect any § 734(b) or § 743(b) adjustments that would
have been made if the § 754 election had been timely made. These basis adjustments
must reflect any additional deductions for recovery of basis related to Company's
property that would have been allowable if the § 754 election had been timely made,
regardless of whether the statutory period of limitations on assessment or filing a claim
for refund has expired for any year subject to this grant of late relief. Any deductions for
the recovery of basis allowable for an open year are to be computed based on the
remaining useful life or recovery period and using property basis adjusted by the greater
of any such deductions allowed or allowable in any prior year had the § 754 election
been timely made. If the partnership is required to file an AAR to properly amend a
partnership return, this ruling is contingent on Company filing Form 1065-X
or Form 8082 and taking into account the adjustments as required by § 6227(b).

   Additionally, affected partners of Company must adjust the basis of their interests

in Company to reflect what the basis would be if the § 754 election had been timely
made, regardless of whether the statutory period of limitations on assessment or filing a
claim for refund has expired for any year subject to this grant of late relief. Specifically,
affected partners of Company must reduce the basis of their interests in Company in the
amount of any additional deductions for the recovery of basis related to Company’s
property that would have been allowable if the § 754 election had been timely made.

   Except for the specific ruling above, we express or imply no opinion concerning

the federal tax consequences of the facts of this case under any other provision of the
Code. In addition, § 301.9100-1(a) provides that the granting of an extension of time for
making an election is not a determination that the taxpayer is otherwise eligible to make
the election.

  The ruling contained in this letter is based upon information and representations

submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the other material
submitted in support of the ruling request, it is subject to verification on examination.

  This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the

Code provides that it may not be used or cited as precedent.

PLR-116018-24 4

In accordance with a power of attorney on file with this office, we are sending a copy of
this letter ruling to your authorized representative.

                                           Sincerely,


                                           Associate Chief Counsel
                                           (Passthroughs, Trusts, and Estates)


                                     By: __________________________
                                         Robert D. Alinsky
                                         Branch Chief, Branch 3
                                         Office of the Associate Chief Counsel
                                         (Passthroughs, Trusts, and Estates)

Enclosure:
Copy of this letter for §6110 purposes

cc: -----------------------
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